The Creation of the IRS

On July 1, 1862, President Abraham Lincoln signed a bill into law that created the Internal Revenue Service and enacted the first progressive Federal income tax. Individuals making between $600 and $10,000 a year were required to pay a 3% income tax rate. Anything over $10,000 had a 5% tax rate.[1]

However, in 1872, the income tax was repealed and the country remained without a Federal income tax until 1894 when it was reinstated.[1]

But that was short lived because in 1895, the Supreme Court ruled the income tax unconstitutional. It would be necessary to amend the Constitution of the United States to settle the issue once and for all. The 16th Amendment was ratified in 1913 and it gave Congress the power to tax the citizens.

The new tax brackets begin as a 1% rate on incomes above $3000 with a 6% rate on earnings more than half a million dollars.[1]

What started out as a simple process morphed into a complicated tax code that required most Americans to seek professional advice to complete their tax returns. Something tells me that this is not the outcome that law makers envisioned back in the 1800s.

There is an easy fix. Set the tax rates based on income and remove all deductions. However, what makes sense in the real world rarely makes sense in the political world, and the likelihood of ever getting a simpler tax code is remote given the many self-interested groups that will lobby against it.

IRS Scandal

There is no other Federal agency that has the power to destroy the lives of American citizens like the IRS. While you could argue that the Justice Department could put you in prison over something, so can the IRS, and while they are doing that, they can take all of your stuff.

If there is anything close to a Gestapo-like organization in the USA, it is the IRS. Their power is immense, allowing them to ruin the lives of any citizen on the slightest evidence of wrong doing. And if they are wrong, do not hold your breath for an apology, or compensation for your troubles.

Recently it was revealed that the organization had a concerted effort to target some political groups with "Tea Party'' and "Patriots'' in their names for closer scrutiny of tax exempt status.[2]

While they have admitted that certain individuals in the organization were overly enthusiasticCredit: United States Internal Revenue Service via Wikimedia Commons about their activities, there is no apology forth coming, nor any admission of guilt despite clear evidence of targeting political groups in a one sided manner.

However, scandal is nothing new for the IRS and this is not the first time the agency has been used for political purposes.

The agency used to be staffed by political appointees up until the 50s when evidence of widespread corruption was revealed causing the dismissal of 66 agents in 1951 by President Truman. At that point he proposed that the agency be staffed by civil employees and hired based on merit, similar to the private sector.

But that did not stop the corruption or the abuse of power.

Government documents released through the Freedom of Information Act confirmed that they also targeted Dr. Martin Luther King in the 60s. This is not a liberal or conservative issue.

The danger in a democracy is that an organization with totalitarian power like the IRS can wield power to affect the outcome of elections to their liking. While it may seem insignificant at first glance, targeting political rivals or groups you do not agree with is the kind of thing that happens in the developing world to keep or maintain power by a select few. Those that are in power trying to preserve the status quo is the greatest threat to any democracy.

However, our system of government is too big with too many checks and balances to allow one agency to threaten the union. Corruption and mismanagement is exposed much easier in the modern age.

However, the idea that certain government employees in certain government agencies use the power they have to cause mischief or punish those on the opposite side is a serious issue and one that needs to be exposed.

IRS Scandal - Targeting Political Enemies

The Future of the IRS

Whatever your political affiliation, you’ve probably had a bad experience with the IRS. If you have ever made the trip to an Internal Revenue Service Center for an audit, you know that they can bring an arrogant attitude into the consultations. And if you ever want to be completely bewildered by the tax code and the myriad of forms necessary for some tax returns, spend some time on the IRS website.

What’s more, they require you to prove beyond a reasonable doubt, justifications for your actions on tax returns, often requiring documented evidence going back years.

However, apparently these same rules do not apply to the agency since it seems they simply destroy old computers and records whenever they feel like it. Their backup systems are less than ideal.

Regarding the current situation with the IRS, anyone that has ever worked in Information Technology knows those emails are not lost. They are on some server somewhere, whether within the organization or on the backups of the recipients of those emails. The fact that they will not produce the evidence should irk every American. Would they give you the same benefit of the doubt in your audit? The answer is obvious.

Whether this current scandal results in meaningful change to the IRS remains to be seen. The tax code has become so complicated that it is almost impossible to fill out your return without an accountant, or at the very least, tax software like Turbo Tax.

It does not have to be this way. Taxes can be collected in an efficient manner without the hassle of keeping piles of receipts and other records. Just set a flat rate for several brackets and get rid of all of the deductions. The tax rates would be lower for each income level to compensate for the loss of deductions.

However, I hate to say it but it will never happen. If they try to remove deductions like mortgage interest, the eeal estate lobby will hammer the members of Congress. Uninformed home owners will panic, misled by an often corrupt and lazy media that is only interested in sound bite headings leading into the next commercial break, rather than explaining issues thoroughly.

So if I sound a bit dour, I don’t mean to be, I am just a realist on some issues. Once government agencies get created and given immense budgets, they are like entitlement programs. They never retreat and they only get larger. This is not a rant on big government, it is simply a recognition that government does not have the same goals or motivations as the private sector. Yes, we need government oversight for environmental issues and other regulatory issues like financial markets, but when those agencies cross the line, the average American is left to feel powerless to affect any meaningful change to an out of control bureaucracy.

What has been going on recently with the IRS should concern all Americans.